all

Housing Inventory Whats Next


Sunday, November 8th, 2009

During the last few years we have seen the housing industry struggle thru the worst period since the Great Depression. You don’t have to look far for evidence of this. In the third quarter there were almost one million new foreclosures reported according to Zilow.com, at the end of the third quarter one million consumers had filed bankruptcy said the American Bankruptcy Institute (they expect the number to reach 1.4 million by the end of this year) and the Census Bureau reported that at the end of the quarter there were 18.8 million homes vacant throughout the country. As if this wasn’t enough Foresight Analytics estimated that prime mortgage delinquency was at 11% at the end of September. Finally, I have not even mentioned something called the “shadow inventory” which will be discussed later.

Then there is the job market. This month’s unemployment rate came in at 10.2% with initial weekly jobless claims of 512,000. That’s 512,000 workers that filed for unemployment benefits last week! Continuing jobless claims were at 5.75 million and folks that does not include the workers whose benefits have run out or who have simply given up looking for work. Most economists think that the economy has to create 150,000 new jobs per month just to keep up with population growth. The current estimate is it will not happen until 2012.

What about the so called “shadow inventory” what is it? Well, it is generally defined as homes that lenders including Fannie Mae and Freddie Mac have in their inventory which are being put on the market in a measured way to keep from flooding the market and depressing values more. No one knows for sure how many homes fit into this category. However, it has been said that since these are homes that have already been foreclosed upon or are seriously delinquent and likely to be foreclosed upon it may take 15-16 months to sell this inventory IF there are no more foreclosures.

Now I have seen the recent good news about the existing housing market including the inventory decline of 7.5% in September from the August data, the total number of existing housing units for sale at 3.63 million the lowest number since December 2008, pending home sales up 6.1% and have increased for 8 consecutive months and so forth. I am not saying that the good news isn’t welcome and may indicate progress in the housing market. What I am saying is that based on much of the foregoing it would appear that the housing market has quite a ways to go before it gets back to something approaching normal.

So what are some the factors influencing the resurrection of the housing market? We have already mentioned some of them namely jobs creation, bankruptcy and managing mortgage delinquency. The whole concept of loan modification has to be revisited in my view. While lowering a homeowners payment by 25-35% is wonderful how many of these people will stay in their home long term if they are seriously upside down? What about those that cannot qualify for a modification because they are out of work? The data on Arm re-sets suggests that another wave of foreclosures is on the horizon as the infamous Pay Option Arm and less infamous interest only Arms start re-setting with much higher payments. We have seen the Federal Reserve and the government pour billions of dollars into programs designed to restore the stability to the housing industry (supporting interest rates and first time homebuyer tax credits, for example). Will the investment prove to have been worth it or will the ultimate price turn out to be more than anyone anticipated? No one knows for sure but it is very likely that the housing market will struggle for at least the next few years as the economy recovers.

No matter how you view it the picture is grim. 





Tags: fannie mae , freddie mac , housing inventory , housing market , pay option arm